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Legislative Update

Week Ending June 22, 2007

• Rendell Signs $52 EMS Tax Reforms
• PICPA Provides Input on PIT Proposal
• Senate Approves $27 Billion State Budget for FY 2007-2008
• House Approves Governor’s Energy Proposal
• State Minimum Wage Set to Rise to $7.15/Hour July 1
• Lawmakers Unveil Taxpayer, Workers Protections
• PICPA Local Government Conference

Rendell Signs $52 EMS Tax Reforms

Gov. Ed Rendell on Thursday signed into law Senate Bill 218, legislation reforming the 2004 Emergency and Municipal Services Tax Act.

“This legislation will benefit every Pennsylvania taxpayer, and especially those who earn less than $12,000 annually,” Gov. Rendell said. “Workers living on a tight budget cannot afford to pay the tax all at once. Breaking it down to no more than $1 a week means the pinch is erased but local governments will still get the revenue they need to build roads, reduce property taxes or support emergency services.”

Senate Bill 218 will end the lump-sum maximum payment of $52 and set specific restrictions on how taxing entities may use revenues raised by the levy. It also requires that the tax be withheld on a payroll-period basis with a maximum deduction of $1 per week. Employers will be required to send collections on a quarterly basis. Those employees earning $12,000 or less per year are exempted from paying the tax.

SB 218 would also rename the tax as the “Local Services Tax” and requires that a minimum of 25 percent of the total revenue collected must go to support emergency services including police, fire, and emergency medical services operations. The bill permits the remaining revenues to be used for road construction and maintenance, property tax reduction, and/or property tax relief through the use of homestead/farmstead exemption.

Governor Rendell vetoed a similar bill last year, Senate Bill 157, due to concerns about how that bill would have impacted local governments. According to Rendell’s veto message, implementing the change would have had to happen in too short a period of time, and municipalities would have lost revenue that they already had budgeted to spend.

When he vetoed SB 157, the Governor did so with the support of the Pennsylvania League of Cities and Municipalities, the Pennsylvania Association of Township Supervisors and the Pennsylvania Association of Boroughs. Cities and towns also voiced their support for the veto of that bill.

“While I am signing into law this new and improved version of the bill, I recognize that some local governments still have concerns about processing the up-front exemption for individuals earning less than $12,000 a year,” Gov. Rendell added. “The Department of Community and Economic Development will work with local government associations and businesses to develop a uniform procedure for filing and processing exemption certificates, which will benefit everyone involved.”

The bulk of the amendments are effective for tax years beginning in 2008.

PICPA Provides Input on PIT Proposal

The PICPA Committee on State Taxation recently provided the state Department of Revenue with comments on the Department’s proposed personal income tax regulation.

According to the proposal’s preamble, the draft rulemaking will clarify the Department’s policy on the form of return taxpayers are required to submit for Pennsylvania Personal Income Tax. In addition, the regulation will provide instructions for taxpayers regarding reporting requirements.

PICPA urged the Department to open a dialogue with tax practitioners to better define the problem the proposal is attempting to address. “If there are specific problems with such filings by taxpayers and practitioners that the Department of Revenue finds on a frequent basis, perhaps a dialogue with the tax practitioner community … could address such matters without the need for a formal regulation,” wrote PICPA.

The proposed regulation has yet to be published in the Pennsylvania Bulletin, which will formally start the regulatory review process.

Senate Approves $27 Billion State Budget for FY 2007-2008

This week, the state Senate approved, by a vote of 49 to 1, a budget for fiscal year 2007-08 that reduces spending by $344 million from the governor’s proposed budget. The $27 billion budget bill includes a less than three percent ($709 million) increase in spending over the current fiscal year, and was passed without any of the new or increased taxes proposed by Gov. Rendell.

House Bill 1286 also increases basic education funding by 3.5 percent, bringing state support to $4.95 billion in FY 07-08. Special education funding would increase by 3 percent, up to a total of just over $1 billion in FY 07-08, and restores $105.7 million in funding cut from a variety of programs and services in his proposed budget.

In other related budget news, rumors have started spreading throughout the Capitol of a possible freeze in the scheduled Capital Stock and Franchise tax phase out. The tax, which is set at 3.89 mills as of Jan. 1, 2007, is scheduled to be completely phased out for tax years beginning 2011. The phase-out has already been stopped twice before.

The bill now goes back to the House where it will be rejected, forcing a conference committee of the two Chambers to iron-out their differences. PICPA is actively monitoring all budget and tax matters.

House Approves Governor’s Energy Proposal

On the heels of last week’s House Finance Committee approval of a major Tax Reform Code initiative of the Rendell administration, the state House this week overwhelmingly approved two major components of Gov. Rendell’s Energy Independence Strategy.

House Bill 1200 expands the Pennsylvania Energy Development Authority to encourage new investments in the state's growing renewable energy development and deployment fields. The authority will target grants, loans and tax credits to alternative energy manufacturers and energy-efficient companies to promote research in the field and attract new jobs to the state.

House Bill 1202 mandates new standards for clean burning fuels like ethanol and biodiesel, and by increasing demand for these products, will help create new opportunities for the state's farmers. The bill requires that gasoline be blended with 10 percent ethanol and that diesel fuel eventually include 20 percent biodiesel once in-state production reaches certain levels.

For more information on the Energy Independence Strategy, visit http://www.depweb.state.pa.us.

State Minimum Wage Set to Rise to $7.15/Hour July 1

On July 1, Pennsylvania’s minimum wage law will increase to $7.15 an hour. The increase for small employers (those who employ 10 or fewer full-time workers) will rise to $6.65 per hour. The increases were approved by the General Assembly and signed by the Gov. Rendell last July.

The 60-day youth training wage, which is currently based on the current federal minimum wage of $5.15, will increase to $5.85 per hour on July 24, 2007, for employees under 20 years of age.

When they are hired, workers are to be notified by their employers of both the training-wage and the workers' right to receive the Pennsylvania minimum wage after 60 calendar days of employment. Under the law, other workers may not be displaced to allow hiring of training-wage workers.

Changes to the federal minimum wage do not impact Pennsylvania's wages in 2007 and 2008, except for the youth training-wage described above. However, recent changes to the federal minimum wage that will affect Pennsylvania's minimum wage in the future include:

• The state minimum wage will increase to $7.25 per hour on July 24, 2009, to match the federal minimum wage.
• Employers with 10 or fewer full-time employees, who were scheduled under Pennsylvania law to have their final minimum wage increase to $7.15 per hour on July 1, 2008, will now see an increase to $7.25 an hour on July 24, 2009.
• The 60-day youth training-wage rate will increase to $6.55 per hour on July 24, 2008, and to $7.25 per hour on July 24, 2009.

Lawmakers Unveil Taxpayer, Workers Protections

House Democratic lawmakers this week introduced a package of bills designed to protect taxpayers and workers when any effort is made to privatize services performed by state agencies.

House Bill 1500, the Public Services Wage Disclosure Act, introduced by Rep. Lisa Bennington, would demand a written standard of quality for any prospective private agency that wants to take over state-supplied services. This measure would require full disclosure of a potential private firm’s records concerning employee turnover rates, training standards, and legal complaints involving employee safety, health or labor relations. This measure would also require any employee terminated due to privatization to be offered a similar job by the private firm taking over the state service.

House Bill 1501, the Public Services Disclosure Act, introduced by Rep. Mike O’Brien, would require preparation of a comparison of the cost of privatization versus to the cost of the state agency providing the service. The state agency would have to prove that privatization would cost taxpayers at least 10 percent less than the estimated cost for the agency to provide the same service.

House Bill 1502, the Public Services Contractor Cost Act, introduced by Rep. Ed Pashinski, would require similar disclosures and also prohibit a private company from using any state funds in the privatization contract to support or oppose unionization.

House Bill 1503, the Public Services Accountability Act, introduced by Rep. Tim Mahoney, would require disclosure and certification of all pending privatization contracts and improve the public’s right-to-know to include documents of the privatized entity pertaining to work performed under the contract. It also would protect “whistleblower” workers who speak out on behalf of those served or the agency.

House Bill 1504, the Public Services Record Act, introduced by Rep. Bill Kortz, would require the same level of public right-to-know on private contracts as is required on services provided by state agencies.

House Bill 1505, the Public Services Privatization Act, introduced by Majority Whip Keith McCall, would guarantee “whistleblower” protection to any public employee or employee of a private company providing public services when they report illegal or unethical actions by a public or private agency, advocate for service recipients served by the contract, or cooperate with a legitimate government investigation.

The bills will be referred to standing House committees for additional study.

Local Government Conference

PICPA’s Local Government Conference is scheduled for Monday, July 16 - Tuesday, July 17 at the Hershey Lodge & Convention Center. In two fact-filled days, receive updates on the latest technical standards and regulatory issues related to local government accounting and auditing. Register today.